Forensic Accounting: Scope of the audit for Torpus

Situation:

Torpus is a small manufacturing company that produces and sells custom Plexiglas canopies for small airplanes and speed boats. In the most recent fiscal year, in the midst of one of the worst recession in more than 30 years, it reported a profit of about $40,000 on an asset base of $309,238. The company has been in operation for 4 years and has doubled its profits every year. Torpus had never been audited before, but it wants to borrow more money from its bank, and the bank's lending officer has insisted on an audit before approving the loan.

You work for a small accounting firm and have been assigned to conduct the Torpus audit. You plan to begin your work by interviewing Ronald Thump, the CEO, and review the financial statements. The first thing you learn, however, is that the company accountant's computer had crashed, causing the income statement for the last 2 years to be lost. The CEO is able to provide the printed copies of the balance sheet. He assures you that he will have the lost income statements reconstructed although his accountant has just left for a 2 week vacation and will not be available during this time. This is a top priority for Torpus because a complete set of financial statements is one of the bank's lending requirements.

Mr. Thump indicates to you that he is eager to expand the business by borrowing $50,000 but the bank won't approve the loan without an audit. He would like for you to complete the audit in 2 weeks. When you try to set up a time to meet with him, he indicates that it will need to be quick as he does not have much time available.

Please prepare a response to the following:

? Define the scope of the audit and the desired outcomes.
? Identify and explain at least 3 types of information to be audited.
? Discuss how the interviews will be conducted, evidence collected, and non-verbal cues evaluated during the interviews.
? Discuss how the audit evidence will be evaluated and conclusion drawn.